Reinventing Performance Management

We need to reinvent Performance Management (PM). And there are several reasons why this is a pressing need. It suffices to observe the pace at which things are changing in the world. Doing so helps us understand that the existing approach to PM is intrinsically limiting. It doesn’t drive high performance, effectiveness or innovation. It does drive efficiencies, though. But, as Peter Drucker once said, “Nothing is less productive than to make more efficient what should not be done at all”.

I would argue that because of the way performance is currently managed, organizations are not adapting and moving at their potential capacity. Rather, they are victims of the limits of their own performance systems. Organizations are trying to accelerate the pace of growth, while keeping a foot on the breaks. The existing PM model, or the “breaks”, is hindering the path of growth, sustainability, profitability and achievement of organizational and personal potential.

When I talk about the existing model of Performance Management, in most cases it works in the following way. Employees set annual goals on an individual basis. Those goals are assessed on a performance appraisal, which usually happens one time at the end of the year. Very often The performance appraisal is based on ratings, which then are translated into performance categories. Most organizations have between 3 and 4 performance categories. So, why is this not working and what can we do about it?

These are two of the main reasons why the approach explained above isn’t working, and it actually is deterring real personal and organizational development and growth:

Why PM doesn’t work, Reason # 1 – How to make it work: Lesson # 1

Why PM doesn’t work, Reason # 1. Not too many years ago people were hired and paid to work on linear and sequential processes at their most efficient level. Step by step processes were the rule, but today they are the exception. In linear and sequential processes it is very easy to reward or punish people. If you have to make 100 shoes, and you made 95, you get some punishment. If you made 105, you get a reward. When linear thinking is the rule, then optimal speed and minimum number of inputs in the production process are critical for efficiency.

How to make it work: Lesson # 1. Today, more than 50% of people work in activities that require creativity. And creativity by definition is not sequential, but rather messy (or parallel!). Many things are happening simultaneously. Risk-taking is essential, and failure is likely. People are working in teams, collaborating across the board and contributing to various goals at the same time. Thus, goals cannot be set for a year, because things change all too fast. And performance evaluations and feedback cannot wait a year to be carried out. Evaluations and timely coaching on project-objectives-tasks based performance is more important and valuable.

Why PM doesn’t work, Reason # 2 – How to make it work: Lesson # 2

Why PM doesn’t work, Reason # 2. People don’t get incentivized or motivated by the same things. Actually, in the book From Good to Great, the leadership guru Jim Collins said that people are motivated and inspired, and that leaders’ job is not to demotivate or dis-inspire. A performance rating system deeply demotivates people. First, it reduces people’s yearly performance to a number or a category. Second, it excessively concentrates on monetary rewards, versus other type of incentives, such as opportunities to thrive and get acknowledged.

How to make it work: Lesson # 2. Salary increases are important, but performance conversations shouldn’t revolve around monetary compensations. There are several approaches to this very delicate issue. One of them is to create a more flexible reward system. For instance, instead of yearly increases, put in place a continuous rewards system, where compensation is based on project-objective-tasks rather on year reviews. However, regardless of the approach that best work for your organization, my point is that rewards have to transcend money. It is necessary that organizations systematically and intentionally create opportunities for people to thrive. For example, giving people to design and implement projects that would stretch their responsibilities and give them more visibility. Wouldn’t that be another complementary way to reward performance?

For the cases of people performing at a low level, maybe switching them to tasks where their talents are more relevant and they can unleash more their potentialities. Wouldn’t that be a better way than describing someone’s performance as “low”?   

Conclusions

Organizations today are aiming to increase their agility to adapt to fast changing times, increasing innovations and effectiveness. And, ultimately, if that quest is real, and not just talk for the sake of using fancy words, then it becomes crucial to look at a different way to measure and reward performance. Initiating the conversation around an alternative approach is essential.

There are no universal rules to design an optimal performance management system. This is intrinsic flaw of the existing approach. It has been applied everywhere and to everyone, as if all organizations and people were the same. For your organization, the important step is to kick off this performance management conversation. Some additional ideas to keep in mind in order to facilitate the conversation are:

• How to measuring and rewarding team performance over individual performance?
• How to addressing individual performance concerns on a timely basis?
• How to create a comprehensive rewards and compensation plan that transcends the limiting monetary incentives?
• How to separate compensation conversations from performance conversations?
• What to take into account in the compensation conversations: performance, potential, succession planning?
• How to use coaching more than feedback?
• How to hold leaders accountable as the front line driving quality performance conversations with their teams?

Follow me on Twitter: @erubio_p
Visit my blog: www.innovationdev.org

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About the Author: Enrique Rubio is an Electronic Engineer and a Fulbright scholar with an Executive Master’s Degree in Public Administration from Syracuse University. Enrique is passionate about leadership, business and social entrepreneurship, curiosity, creativity and innovation. He is a blogger and podcaster, and also a competitive ultrarunner. Visit the blog: Innovation for Development and Podcast. Click here to follow Enrique on Twitter. 

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